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Whether you actively use a social networking site – Facebook, Twitter, Myspace… just kidding – there’s no denying the power of social media. The idea behind Groupon is one of channeling the power of a large group, into driving down the price of a product through bulk purchasing.

Groupon

For those unfamiliar with the concept, allow me to explain: by buying in bulk, the savings can be passed on the consumer, resulting in an excellent deal – sometimes up to 90% off or more – that would be otherwise unavailable with individuals making single purchases. Groupon operates by only activating deals when a pre-determined number of people choose to buy that particular product. This has spurred countless buyers to persuade family, friends, and contacts to make the purchase so they will get the deal, again harnessing that social capital.

Within just 17 months of launching, Groupon was able to effectively establish its presence in 50 cities through America. In 2010, they achieved an estimated $100 million in sales, of which the companies net was between 30-50%. There is really no doubting that Groupon has tapped into a large niche – people who love bargains, particular during a recession. It is important to note that there are also tactical strategies that helped the company to become extremely successful.

Groupon was inspired by a collective bargaining company known as Mercata; however, this company failed. Groupon became very conscious about   making those  same mistakes. One effective strategy was to focus on only one deal per day. The diversity of the type of deals available on the site further propelled its success. Everything from a haircut to language lessons could and would be available at a heavy discount.

The diversity of deals helps attract a larger community of buyers, as well as many repeat visitors, returning to the site every day for the latest deals.

In addition, Groupon provides an attractive advertising platform to many companies, allowing them to advertise to people who want to see their offers, rather than spending large amounts of money on traditional, blanked interruption marketing methods such as television or radio.

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